Saudi To Maintain Oil Supply If U.S. Draws Stocks

Saudi Arabia is likely to maintain high oil production in the event consumer countries release emergency stocks, but it will not seek to lure buyers for more oil by discounting its crude, industry sources said.

U.S. Secretary of State Hillary Clinton on Saturday in Riyadh sought an assurance from Saudi King Abdullah that the kingdom would not neutralise a release of inventories by consuming countries by cutting its production.

Saudi officials told the U.S. delegation a drawdown was “unnecessary” but said the kingdom would continue to meet global oil market demand if the United States and allies went ahead, an industry source familiar with the matter told Reuters.

“Saudi production will unlikely change from the levels we see now, even if the stocks are released because the stocks will not have an impact,” another source familiar with the talks said.

“Everyone knows that Aramco is a commercial operation and it will not discount oil,” he added, in reference to oil sales by the Saudi state oil company.

The United States with Britain and France is considering a release from strategic reserves and is seeking cooperation from other consumer countries.

Saudi Arabia has repeatedly said it is meeting customer needs and that it is ready to meet any extra requirements. A European Union embargo and U.S. financial sanctions on Iran are expected to deepen a decline in Iran’s oil sales over the next few months. Saudi is the only producer with spare capacity.

“Aramco meets the needs of its customers whether an embargo is in place or whether a strategic stock is used,” Saudi Deputy Oil Minister Abdul Aziz Bin Salman bin Abdulaziz told reporters in Dhahran on Tuesday.

“The use of stocks or the embargo are both sovereign decisions and we do not want to be part of a zero-sum game.”

Riyadh has long avoided pushing down oil prices by offering deeper discounts for its crudes in an effort to encourage refiners to store more crude.

Last June, the International Energy Agency (IEA) group of major consuming countries released stocks when prices rose during civil war in Libya.

Saudi Arabia kept its output more or less steady after the announcement but then cut supplies as oil from consumer stocks reached the market.

Saudi pumped 9.85-9.90 million barrels per day from July to September, before falling to just over 9.40 million bpd in October and November. It has since risen steadily back to about 9.90 million bpd.

Saudi Oil Minister Ali al-Naimi last month said the kingdom had met all its customers’ requests for oil and stood ready to raise output to full capacity of 12.5 million barrels per day (bpd), if needed.